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Welcome to my Law blog specifically intended as an aid to law students. I will post comments and white papers, from time to time, and I am happy to carry on conversations with students who are in need of help in law school.

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Wednesday, April 28, 2010

1 - Contracts - Performance (Intro. – Outline)

1 - CONTRACTS - PERFORMANCE (Intro. – Outline)

PLEASE NOTE THAT THE FOLLOWING IS TAKEN FROM SOME OF MY CLASS NOTES, SOME OF WHICH IS MY OWN PERSONAL WORK AND SOME OF WHICH BELONGS TO CONCORD LAW SCHOOL.IT IS POSTED TO HELP MY IL STUDENTS IN PARTICULAR.IT CANNOT BE DISSEMINATED WITHOUT EXPRESS, WRITTEN PERMISSION.

We have finished Contract Formation and now we move on to Contract Performance. Just remember to always consider and, if applicable, complete Formation before moving on to Performance. Once a contract has been properly formed, it’s time to see if it has been properly performed. There are three parts to Performance. The first is Conditions. The second is Discharge. The third is Breach. Pursue these in order. The following is a brief outline for Performance:

I. Conditions
A. Are there any conditions? (An act or event, other than the lapse of time, which, unless the condition is excused, must occur before a duty to perform a contractual promise arises (condition precedent), or which discharges a duty of performance that has already arisen (condition subsequent).
1. Express, Implied or constructive.
An express condition is one that is created by the parties at the time of contracting and is included in the writing. These require strict compliance, in general. Rule: An express condition must be strictly satisfied. The condition can be excused by wrongful prevention.

An implied condition is one that is imposed by the court as a remedy in certain cases.
A constructive condition is implied/construed by the court.

2. Precedent, concurrent or subsequent
A precedent condition is one that must happen before a party's duty to perform arises.
A concurrent condition is a particular kind of condition precedent. Unless tender is excused, a party must perform or tender performance before the party has a claim.
A condition subsequent is any event, the existence of which, by agreement of the parties, discharges a duty of performance that has arisen.

3. A satisfaction condition is one that must meet someone's satisfaction/standards.
Subjective standard: requires personal, subjective judgment of the parties. A dissatisfaction must be in good faith
Objective standard: the general reasonableness standard applies
B. If there are conditions, have they been satisfied?
1. As a general rule, express conditions require strict compliance.
2. C/L Perfect Tender Rule: Tender must strictly comply with the offer.
3. Time to Cure: UCC 2-508. If the time for performance has not yet expired, by expressing an intent to cure, the seller may cure the defect prior to the time for performance. Even after the time for performance has expired, seller may cure IF seller had reasonable grounds to believe that buyer would accept non-conforming tender.

C. If there are conditions that have NOT be satisfied, are they excused?
1. Waiver and forfeiture.
Waiver: An express condition can be waived by expressing to the party that he will not insist on the condition.
Retraction of Waiver: A waiver can be retracted, but only upon notice that the party intends to enforce the condition AND upon giving the other party a reasonable time to comply.
Waiver Restored: A waived condition can be restored, unless the waiver was given in exchange for consideration, unless the other party has relied on the waiver. A waiver cannot be reasserted AFTER reliance.
Forfeiture: If the performance recipient, by relying on strict performance of a condition, would cause an extreme forfeiture, then courts often will not be willing to enforce the strict performance.

NOTE: If there are no conditions, or if all conditions have been satisfied or excused, the promisor has an absolute duty to perform.

II. Discharge
(Note that the Duty to Perform can be discharged by actual performance, but also by impossibility/impracticability or frustration of purpose. Make sure that the event that occurs is not foreseeable and that neither party has expressly or impliedly assumed the risk of the occurrence or non-occurrence of the event they claim discharges their duty.)

(Also note that Illegality, Death and Destruction (risk of loss) – Almost an automatic excuse for non-performance.)

A. Impossibility
1. Common Law: Objective impossibility – that no one can perform this contractual duty (death/destruction cases) because of a supervening event.
2. Modern View: No one can perform the duty or the duty has been made impracticable (can only be done at excessive and unreasonable cost).
B. Existing impracticability. When a circumstance, existing at the time of the contract, which neither party had reason to be aware of, renders the promisor's performance severely impracticable, the promisor's duty to perform is discharged.
C. Frustration of Purpose
1. Where some external event (or non-event) causes the original purpose of the contract to be avoided.
2. Modern View: Where performance remains possible, but the expected value of performance to the party seeking to be excused has been destroyed by a fortuitous event.
a. What was the foundation of the contract?
b. Was the performance of the contract prevented?
c. Was the event that prevented performance of such a character that it cannot reasonably have been contemplated by the parties at the time of contracting?

III. Breach (the failure to perform an unconditional obligation)
A. Anticipatory (Prospective) – Words or conduct by a party to a contract showing unequivocal refusal to perform in advance of the contract performance date. Adequate assurances and Retraction, both under the UCC.
1. C/L: may sue immediately or wait until the time for performance and then declare a breach.
i. Breachor can retract, if in time, but there is no breach, therefore no damages
2. UCC: may sue immediately or wait until the time for performance and then declare a breach, but the non-breaching party must suspend performance, IF continued performance would have the effect of increasing damages (mitigation).
i. 2-609: Can ask for adequate assurances. Breachor must respond within a reasonable time, not to exceed 30 days.
ii. 2-611(1): Can retract repudiation until next performance unless the other party has acted on it. Still can get damages.
B. Present – Material and Minor
(1) Material:
a. Extent injured party will benefit
b. Extent injured party may be compensated in damages
c. Extent breaching party has performed
d. Hardship on breaching party
e. Willful, intentional, necessary or innocent breach
f. Certainty that breachor will perform
(2) Effect: If material, buyer has no duty and can rescind the contract and get his money back. If minor, the buyer can sue for damages, but buyer must perform his duty.

(3) Exceptions:
a. Divisibility: Seller may only be liable for part of the breach.
b. Time to Cure. UCC 2-508. Even if the recipient of a material breach is generally required to allow the breaching party the time to cure.

C. Relief for the Breachor (the defaulting party) –
1. C/L: A breaching party could never recover.
2. Restatement 2d: Limited Restitution: The party in breach is entitled to restitution for any benefit that has been conferred by way of part performance, or for reliance in excess of the loss that he has caused by his own breach (quasi-contract – the court fashions a remedy even though a contract is not proven under the facts).
3. UCC: A defaulting party can obtain restitution of payments minus one of two figures: $500 or 25% of the buyer's obligation IF the latter is less than $500. The buyer's claim for restitution is subject to a further offset in the amount of the seller's actual damages and the value of benefits received by the buyer as a result of the contract. The buyer's right may be curtailed or expanded by a valid liquidated damages clause.
4. Minor – Substantial Performance
5. Material – Time to Cure
6. Material/Total – Divisible contract and restitution